West Bend Mutual Insurance Company PDF
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Report of the Examination of West Bend Mutual Insurance Company West Bend, Wisconsin As of December 31, 2019 TABLE OF CONTENTS Page I. INTRODUCTION.........................................................................................................................1 II. HISTORY AND PLAN OF OPERATION.....................................................................................3 III. MANAGEMENT AND CONTROL..............................................................................................6 IV. REINSURANCE........................................................................................................................9 V. FINANCIAL DATA....................................................................................................................22 VI. SUMMARY OF EXAMINATION RESULTS.............................................................................31 VII. CONCLUSION.......................................................................................................................33 VIII. SUMMARY OF COMMENTS AND RECOMMENDATIONS.................................................34 IX. ACKNOWLEDGMENT............................................................................................................35 X. SUBSEQUENT EVENT………..……………………………………………………………………..36 Tony Evers, Governor of Wisconsin Mark Afable, Commissioner of Insurance October 22, 2020 Honorable Mark V. Afable Commissioner of Insurance State of Wisconsin 125 South Webster Street Madison, Wisconsin 53703 Commissioner: In accordance with your instructions, a compliance examination has been made of the affairs and financial condition of: WEST BEND MUTUAL INSURANCE COMPANY West Bend, Wisconsin and this report is respectfully submitted. I. INTRODUCTION The previous examination of West Bend Mutual Insurance Company (West Bend or the company) was conducted in 2015 as of December 31, 2014. The current examination covered the intervening period ending December 31, 2019, and included a review of such subsequent transactions as deemed necessary to complete the examination. The examination was conducted using a risk-focused approach in accordance with the National Association of Insurance Commissioners (NAIC) Financial Condition Examiners Handbook. This approach sets forth guidance for planning and performing the examination of an insurance company to evaluate the financial condition, assess corporate governance, identify current and prospective risks (including those that might materially affect the financial condition, either currently or prospectively), and evaluate system controls and procedures used to mitigate those risks. All accounts and activities of the company were considered in accordance with the risk- focused examination process. This may include assessing significant estimates made by management and evaluating management’s compliance with statutory accounting principles, annual statement instructions, and Wisconsin laws and regulations. The examination does not attest to the fair presentation of the financial statements included herein. If during the course of the examination an 125 South Webster Street, P.O. Box 7873 | Madison, WI 53707-7873 p: 608-266-3585 | 1-800-236-8517 | f: 608-264-6237 [email protected] | oci.wi.gov adjustment is identified, the impact of such adjustment will be documented separately at the end of the “Financial Data” section in the area captioned "Reconciliation of Surplus per Examination." Emphasis was placed on those areas of the company's operations accorded a high priority by the examiner-in-charge when planning the examination. The company is annually audited by an independent public accounting firm as prescribed by s. Ins 50.05, Wis. Adm. Code. An integral part of this compliance examination was the review of the independent accountant's work papers. Based on the results of the review of these work papers, alternative or additional examination steps deemed necessary for the completion of this examination were performed. The examination work papers contain documentation concerning the alternative or additional examination steps performed during the examination. Independent Actuary's Review An independent actuarial firm was engaged under a contract with the Office of the Commissioner of Insurance. The actuary reviewed the adequacy of the company’s loss and loss adjustment expense reserves. The actuary’s results were reported to the examiner-in-charge. As deemed appropriate, reference is made in this report to the actuary’s conclusion. 2 II. HISTORY AND PLAN OF OPERATION The company was organized in 1894 as West Bend Mutual Fire Insurance Company of Washington County under the provisions of the Wisconsin Statutes then in effect. In 1916, the company changed its name to West Bend Limited Mutual Fire Insurance Company and in 1926 detached the word “Limited” from its name. In 1957 the company changed its name to that presently used. In 2019, the company wrote direct premium in the following states: Wisconsin $ 519,837,620 38.25% Illinois 236,042,944 17.37 Minnesota 177,019,422 13.03 Iowa 168,374,290 12.39 Indiana 91,768,587 6.75 Michigan 52,929,285 3.89 Ohio 35,069,623 2.58 Missouri 26,063,174 1.92 Kentucky 14,936,564 1.10 Tennessee 12,894,629 0.95 Kansas 12,707,158 0.94 North Carolina 7,078,017 0.52 Nebraska 3,708,631 0.27 All Others 620,472 0.05 Total $1,359,050,415 100.00% The company markets a broad range of property and casualty products and services through four strategic profit centers: Commercial Lines, Personal Lines, NSI, and Argent. West Bend’s premium mix is approximately 67% commercial lines and 33% personal lines. As of December 31, 2019, the company was licensed in 49 states and wrote business in 38 states. In 2018, West Bend began a state expansion initiative to become licensed in all states with the intention of writing policies that are ancillary in nature to polices written in the company’s core states. Prior to the expansion, West Bend utilized fronting arrangements to write such polices. With the expansion, fronting arrangements were no longer necessary, and the company could write such polices directly. The core states (Wisconsin, Illinois, Minnesota, Iowa, and Indiana) account for 88% of direct written premium. The major products of the company are marketed through an independent agency system of over 1,400 independent agencies located throughout the states where the company is licensed to write insurance. Agents are appointed for each profit center. 3 The Commercial Lines strategic profit center mainly targets small businesses such as auto services, auto dealers, manufacturing, construction, and other types. The Personal Lines strategic profit center markets West Bend’s Home and Highway® program to the general public and through agencies that focus on selling this product through their Association Plus affinity program. NSI was created in January 1999 as a specialty lines strategic profit center that offers products and services to businesses and programs that have unique insurance needs. NSI programs focus primarily on social services, sports and leisure, special events, alarm installation and monitoring, childcare, personal appearance care, fairs, detective and security, and assisted living programs. During 2010, the company added Argent, a monoline worker’s compensation strategic profit center that focuses on writing larger accounts. Argent delivers a highly specialized service-oriented product to assisted living/skilled care and home health facilities, hospitals, medical clinics, manufacturing, not-for-profit organizations, educational/school districts, contracting, and transportation (local, intermediate, and long haul). On November 30, 2010, the company sold its subsidiary, Michigan Insurance Company (MIC), to the Donegal Group, for strategic reasons. MIC was approximately 83% owned by West Bend and ceded 80% of its business to West Bend under a quota share reinsurance agreement. The quota share was discontinued in 2010 and is in runoff. West Bend created a reinsurance trust at the time of the sale to secure its obligations to MIC. During 2018, the amount of the agreement left in runoff fell below the predetermined amount that West Bend was required to maintain a trust account. The trust account was dissolved on December 21, 2018, and the remaining balance of $9,112 was closed out in January 2019. 4 The following table is a summary of the net insurance premiums written by the company in 2019. The growth of the company is discussed in the “Financial Data” section of this report. Direct Reinsurance Reinsurance Net Line of Business Premium Assumed Ceded Premium Fire $ 51,148,516 $ $ 6,970,582 $ 44,177,933 Allied lines 112,743,282 7,382,666 105,360,616 Homeowners multiple peril 165,244,345 11,639,058 153,605,287 Commercial multiple peril 56,495,643 5,495,927 50,999,717 Inland marine 35,351,781 733,564 34,618,217 Earthquake 2,372,209 39,774 2,332,436 Workers’ compensation 265,233,502 4,314,638 29,073,396 240,474,743 Other liability – occurrence 202,503,543 8,402,148 194,101,395 Other liability – claims made 22,737,298 (13,528) 22,750,826 Products liability – occurrence 27,070,945 (19,857) 27,090,801 Products liability – claims made 20,357 20,358 Private passenger auto liability 121,244,150 (113,520) 121,357,670 Commercial auto liability 104,601,114 1,251,755 1,320,696 104,532,173 Auto physical damage 162,984,294 1,955,068 161,029,226 Fidelity 2,106,969 2,106,969 Surety 13,912,220 38,585 2,901,575 11,049,230 Burglary and theft 358,208 7,759 350,449 Boiler and machinery 12,922,040 12,922,040 Reinsurance – nonproportional assumed property 10,347 10,347 Total All Lines $1,359,050,415 $5,615,325 $88,697,349 $1,275,968,392 5 III. MANAGEMENT AND CONTROL Board of Directors The company’s board of directors consists of no fewer than nine and no more than 12 members. Currently, the board consists of 12 members. The board is currently headed by a lead director instead of a chairperson of the board. The directors are divided into three classes, each containing as near as possible one-third of the total number of directors. At each election, one class of directors is elected to fill the expiring terms. Directors are generally elected to serve a three-year term unless they are filling an unexpired term, serving a partial term due to retirement, or unless a shorter term is needed for appropriate staggering. Nonemployee directors are compensated via annual retainer fees for board membership. Directors receive a quarterly retainer of $18,125 for their service on the board. The lead director receives an additional quarterly retainer of $3,750. The board committee chair for the Audit Committee receives an additional quarterly retainer of $2,500. All other board committee chair members receive an additional quarterly retainer of $1,875. Currently, the board of directors consists of the following persons: Term Name and Residence Principal Occupation Expires James Bolton Retired Senior Executive Vice President 2023 Mequon, Wisconsin Metavante, Inc. Curt Culver (Lead Director) Retired President and Chief Executive Officer 2023 Milwaukee, Wisconsin MGIC Investment Corp. Katherine Gehl Retired President and Chief Executive Officer 2023 Chicago, Illinois Gehl Foods, Inc. Founder and Chairman Institute for Political Innovation Susan Kreh Chief Financial Officer 2022 Brookfield, Wisconsin Oil-Dri Corporation Elizabeth Neuhoff President and Chief Executive Officer 2023 Jupiter, Florida Neuhoff Communications Gary Poliner Retired President 2022 Santa Fe, New Mexico Northwestern Mutual Life Insurance Company Douglas Reuhl Retired President and Chief Executive Officer 2021 Madison, Wisconsin American TV 6 Term Name and Residence Principal Occupation Expires Kenneth Riesch President 2021 Waukesha, Wisconsin R&R Insurance Services James Schloemer Chairman and Chief Executive Officer 2021 Fox Point, Wisconsin Continental Properties Company, Inc. Richard Searer Retired President 2022 Madison, Wisconsin Kraft North America Jay Sekelsky Retired Investment Advisor 2022 Madison, Wisconsin Madison Investment Advisors Kevin Steiner President and Chief Executive Officer 2021 West Bend, Wisconsin West Bend Mutual Insurance Company Peter Ziegler1 Retired Chairman, President and 2020 Slinger, Wisconsin Chief Executive Officer Ziegler Companies, Inc. Officers of the Company The executive officers serving at the time of this examination are as follows: Name Office Kevin Steiner President and Chief Executive Officer Heather Dunn Senior Vice President – Chief Financial Officer and Treasurer Christopher Zwygart Vice President – Chief Legal Officer Richard Fox Senior Vice President – Chief Actuary and Chief Risk Officer Murali Natarajan Senior Vice President – Chief Information Officer Derek Tyus Vice President – Chief Investment Officer Committees of the Board The company's bylaws allow for the formation of certain committees by the board of directors. The Chief Executive Officer is an ex-officio member of all committees. The committees at the time of the examination are listed below: Audit Committee Executive Committee Douglas Reuhl, Chair Curt Culver, Chair James Bolton Gary Poliner Katherine Gehl Douglas Reuhl Susan Kreh Richard Searer Elizabeth Neuhoff James Schloemer Kenneth Riesch 1 Mr. Ziegler retired from the West Bend Mutual Board of Directors on March 18, 2020. Mr. Sekelsky was added to the Board on the same day as Mr. Ziegler’s retirement. 7 Committees of the Board (continued) Governance/Compensation Committee Investment Committee Richard Searer, Chair Gary Poliner, Chair Curt Culver James Schloemer Elizabeth Neuhoff Jay Sekelsky Douglas Reuhl Peter Ziegler Kenneth Riesch Peter Ziegler Strategic Risk Oversight Committee James Schloemer, Chair James Bolton Curt Culver Katherine Gehl Susan Kreh Gary Poliner Richard Searer Jay Sekelsky 8
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